Method of Innovation for Japanese Med-Tech Industry

－Essence of Silicon Valley Style and How Japan Can Tap IT －

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Total of medical devices (Right)Manipulation devices (Left)Artificial internal organ apparatus and assistance devices (Left)Image diagnostic devices (Left)Measuring and monitoring systems for bio-phenomena (Left)Treatment and surgical devices (Left)

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National Healthcare Expenditure (Right) Inpatient & Outpatient

Inpatient Outpatient

Neoplasm Diseases of the circulatory system

Diseases of the digestive system

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1. Overview of Japanese Medical Devices (Med-Tech) Industry

・In Japan, government is taking the lead to solve a "device lag" and promote med-tech industry. At the same time, aggressive corporate reorganization like Medtronic’s acquisition of Covidien is ongoing worldwide. Under these circumstances, referring to US companies, we study a method of innovation for Japanese medical devices industry.

・In Japan, national healthcare expenditure is expanding gradually along with the aging population. Nevertheless, due to increasingly sophisticated medical treatment, which results in shorter hospitalization stays and, thus, fewer hospital beds, we are successfully avoiding a rapid increase in the number of inpatients. There are many types of medical devices (Figure 1-2) and the market size of the industry is growing, especially for catheters and in the medical endoscope field.

・The portion of imports in Japan's med-tech market is large (49%), mainly from the US. The portion of imports has stayed between 46% and 49% over the last ten years; thus, domestic production and imports grew at approximately the same proportion.

・Japanese med-tech companies are doing well, as we see on page 5, but US med-tech companies are still leading the market worldwide. One of the reasons seems to be a technological ecosystem in which innovation is partly driven by venture companies that are then acquired by major companies. We studied the mechanism and released the report Silicon Valley's "Ecosystem" for the Development of Medical Devices. Tapping the network we developed in the course of this study, we consider a new way for increased Japanese participation in this sector's innovation.

Figure 1-3 Domestic Market Size of Medical Devices

Figure 1-2 Classification of Major Medical Devices Figure 1-1 National Healthcare Expenditure and Estimated Number of Patients

Figure 1-4 Trend of Medical Device Imports

(JPY trillion） (thousand people / day)

（CY） （CY）

（FY）

No.241-1 （September 17, 2015）

Notes. The source for Figs.1-2, 1-3 and 1-4 is the Ministry of Health,

Labour and Welfare's Statistics of Production by Pharmaceutical Industry. Market size is estimated by Domestic products ＋ Imports － Exports.

Sources. Patient surveys and the Ministry of Health, Labour and Welfare's triennial Estimates of National Medical Care Expenditure.

(JPY billion） (JPY billion） (JPY billion）

Category Broad classification Middle classification

Manipulation devices

Injection and puncture devices, Tubes

and catheters, Blood donor andtransfusion devices, surgical needlesetc

Artificial internalorgan apparatus andassistance devices

Pacemakers/Artificial bloodvessels/Stents, Prosthetic joints,

Dialyzators, Artificial lungs,Respirators etc

Treatment andsurgical devices

Equipment for use with radiotherapyequipment, Low and high frequencytherapy equipment, Laser therapy

devices etc

Image diagnosticdevices

X-ray inspection device, CT, MRI,

Thermography, X-ray imagediagnostic device, Diagnosticultrasound imaging systems etc

Measuring andmonitoring systemsfor bio-phenomena

Clinical thermometer,Sphygmomanometer, Percussion

device, Heart rate rheometer,Tonometer, Endoscopes etc

Treatment

devices

Diagnostic

devices

医療機器産業におけるイノベーションの方法論　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　－シリコンバレーのエッセンスと日本での展開－2. ‘Ecosystem’ for Med-Tech Development (part 1)

・We study again the Silicon Valley "Ecosystem" regarding the process of business development. We have invested (2014/9) in one med-tech fund, Emergent Medical Partners II, L.P. (http://www.dbj.jp/en/topics/dbj_news/2014/html/0000017115.html) Since then, we have interviewed various venture funds regarding actions taking place in the Ecosystem and re-plotted the system as per Figure 2. The exits of med-tech startups are mainly through takeovers by large-size or middle-size med-tech companies. In Silicon Valley, there are an especially large number of acquisitions. It can be said that this constitutes a part of the world's business development.

・This process is established by the US labor market and culture, and the key factors are the following. 1. a management team that implements ‘Concept’ 2. mutual understanding of business operators and investors 3. existence of financial providers at each stage 4. continuous relationships between venture companies and acquired companies

Figure 2 Ecosystem in Silicon Valley Focusing on ‘Business Operators’ and ‘Financial Provider’

Notes. Comments on various VCs.

At an early stage, doctors, engineers and business people cooperate to generate ideas. Often the doctors themselves do not run the start-ups but have roles such as COOs and CMOs.

Step1

Start of Project

Step2

Organizing Management

Team and Venture Capital

Step3

Process of Business Growth

Step4

Exit

・The gestation periods of the project and the pace of growth of the enterprise value vary; however, the gestation periods tend to be longer because the FDA approval process is lengthening.

・VCs sometimes commit after approval of CE-marking and/or FDA approval. In that case, the role of VCs is to support marketing and sales after authorization.

・The management team is organized via the incubation process.

・The management team is not only for development of technology but also for the FDA approval process, marketing, and construction of an appropriate exit strategy.

・Venture capital plays a combination of the following roles.

1. giving body and substance to the business and building a management team

2. supporting business operations to facilitate a good management team

･Big med-tech companies have a ‘business development’ sector, where they start watching businesses at an early stage and acquire those companies whose business matures．

・In some cases, at later stages the roles of VCs and the business development sectors overlap.

・For large companies, the post-merger integration process is the most important. They start the process of developing a ‘new business’ along with their strategy.

No.241-2 （September 17, 2015）

Idea Prototype Animaltesting

Preparation for clinical trials

Clinicaltrials

FDA approval

Business Development・Sales

Venture Capital

Incubators

Leading medical device manufacturer

Angels

Acquisition

VA／CVC

Venture firmsStep2 Step3 Step4

Universities,medical & researchinstitutions Entrepreneurs/

Engineers

Step1

Physicians (advisors)

医療機器産業におけるイノベーションの方法論　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　－シリコンバレーのエッセンスと日本での展開－3. ‘Ecosystem’ for Med-Tech Development (part 2)

・We interviewed some Silicon Valley venture capitalists to hear about their way of thinking about the business process. We integrate the essence of the interviews below. This report includes the opinions of both the early-stage and the later-stage VCs we interviewed, despite their frequent differences.

・Every comment is important, but the following are more essential. 1. When VCs consider investment in a venture business, they take into account what the VB is trying to accomplish. VCs consider valuable a VB's desire for a big change. 2. VC's take into account the experience of the members of the VB's management team. 3. Regarding exit strategy, important characteristics include longtime relationships and a sense of special fit between acquiring and acquired companies.

・Of course, ecosystems exist in other regions—for example, Minnesota. However, this time we glean the Silicon Valley VCs' comments for some clues to this sector's uniqueness.

・Also, major US med-tech companies have business development sectors that monitor the exits of VBs continuously and start to raise new ‘business’ worldwide through acquisitions, as we discuss later.

Figure 3 Interview Comment (opposing opinions included)

No.241-3 （September 17, 2015）

*1 We asked about order of priority; The level of technology, Market size, Cost of development, Sales Force, etc.

Notes : Comments on various VCs

Experience is

important

Aspect of fit

when acquiring

a company

Various

opinions

Various

opinions

Promoting

confidence-

building

　

Evaluate the

management

team

(1) How important is ‘experience’ in

running start-up companies?

(3) As for exit strategy, what is the image of the

‘acquiring company’?

(2) Important points in terms of investment *1(4) Can Japanese companies be startup-‘acquiring

companies’?

What you want

to accomplish?

Severe opinion

・The sense of fit is the most important aspect.

No matter how large the acquiring company

is, the project’s results depend on how the new management team deals with the

project. An inappropriate fit can lead to

damaging defections from a VB team.

・Technologically skilled team members are

helpful when generating new ideas, but it is

more important to organize an experienced ‘management team’. Without experience,

commercialization doesn’t work.

・Because med-tech has numerous regulations

and patents, it is difficult for people lacking

experience to deal with the issues.

・For example, competence in digital health

might not depend on healthcare experience.

As long as it includes a technologically

skilled person, a team can be assembled

appropriately.

・Only large-size companies can afford to

make acquisitions. Even middle-size

companies are not able to pay for them.

・It is important to build mutual trust.

Credibility at critical moments is key, and

that is why frequent contact is necessary.

・Japanese companies need to clarify what

they want to accomplish. Long-time

relationships are also important, as are

actual track records of actual transactions.

・The most important point is ‘patients first’ --

that is, how the product works for patients.

Market size differs from project to project.

The bigger the market is, the more difficult

the project is.

・The first priority is market size, and the

second is the solution. So, can you make a big change for the market? The third

priority is cost of development, and the

fourth is sales force. The technology is the

last priority; thus, big change comes not

from technology itself., but rather from

ideas.

・The most important thing is the kinds of

problems to be solved. 'Unmet needs' must

be the focus. For example, mere

improvements in 'stent' quality are not

critical to increasing the size of their

market. Market size depends more on the impact of the solution to the problem.

・Japanese companies' decision-making is

slow and their leaders' committedness is

weak. Also, their sales focus is Japan-

centric, whereas their foreign competitors

sell globally; so, their respective evaluations

of start-ups are also from differentstandpoints. That contributes to pricing

differences between companies, because

when foreign companies in the US really want to penetrate that country's market,

they incur heavy costs for investment in capital, both human and financial.

・M anagement is the most important aspect,

followed by clinical efficiency.

・Key components of management are team

composition, first, and corporate size,

second, followed by technology and financial

status.

医療機器産業におけるイノベーションの方法論　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　－シリコンバレーのエッセンスと日本での展開－4. Technology Trend & M&A Cases in Silicon Valley and the US

Figure 4-1 Exit Cases via M&A (subset of California exit cases between 2009 and 2015)

・ Below we organize some trends of med-tech VB from Silicon Valley. Both major companies and

venture companies are major players and the main trend is ‘minimally invasive’.

・ First, in the circulatory system, for ischemic cardiac disease such as angina pectoris and cardiac

infarct, we usually do catheter intervention called PCI. That field develops many kinds of

products--from bare metal stents to drug-eluting stent and bioabsorbable vascular scaffold

systems. For tachyarrhythmia, the evolution of ablation electrodes and ICDs is ongoing.

・ Also, the incidence of aortic valve stenosis is increasing in line with the aging population; and as

for valve replacement, TAVI is spreading in the US and Europe. Products for TAVI and

transcatheter products for mitral valve insufficiency are also being developed actively.

・ In addition, you can see various other kinds of development: intravascular treatment for lower

extremity arteries etc, intravascular treatment for neurosurgical operations such as stent

retrieval, ENT in the area of sinusitis, and SCS for chronic pain. Trends in exits in California are

represented by the cases highlighted in Figure 4-1.

・ At the same time, major US med-tech companies are aggressively engaging in M&A outside

Silicon Valley, both in and outside the US (Figure 4-2), and driving innovation and the scale of

sales.

No.241-4 （September 17, 2015）

Company Acquiring Company Year Products Field

Spinal Modulation St.Jude Medical 2015

A form of spinal cord stimulation that targets

a neural structure within the spine called the

dorsal root ganglion

Chronic pain

Reverse Medical Covidien(*1) 2014 Vasucular embolization plugs etcVasucular

disease

WaveTec　Vision Alcon(Novartis) 2014 Ophthalmic surgical guidance system Ophthalmology

Nanostim St.Jude Medical 2013 Miniaturized, leadless pacemakers Irregular pulse

Loma Vista Medical C.R.Bard 2013Aortic valvuloplasty products, which use

noncompliant fiber-based ballon technologyValvular disease

Crux Volcano（*2） 2012Filter technology for the vascular,

cardiovascular and interventinal radiologyPeriferal

Vessix　Vascular Boston Scientific 2012A catheter-based renal denervation system

for the treatment of uncontrolledHypertension

Newport MedicalInstruments

Covidien(*1) 2012Dependable, life improving ventilators that

are affordable for caregivers

Respiratory

disease

Cameron Health Boston Scientific 2012Implantable Cardioverting Defibrillator

without intravenous leadsIrregular pulse

BÂRRX Medical Covidien(*1) 2012 Eesophageal ablation Digestive

system

Ardian Medtronic 2011Catheter-based treatment for

hypertension(high blood pressure)Hypertension

Concentric Medical Stryker 2011Minimally invasive products for the

treatment of acute ischemic strokeNeurosurgical

Acclarent Ethicon(J&J) 2010 Balloon Sinuplasty technology ENT

InSound Medical Sonova 2010Hearing system which is placed deep in the

ear canalENT

Evalve Abbott 2009 Percutaneous mitral valve repair system Valvular disease

医療機器産業におけるイノベーションの方法論　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　－シリコンバレーのエッセンスと日本での展開－Figure 4-2 Major US Companies’ M&A Deals

No.241-5 （September 17, 2015）

Note. Sources for Figs. 4-1 and 4-2 are IR and other press release materials. *1 Medtronic at present. *2 Philips at present.

Acquiring Company/Asignee

Acquired Company/Assignor

Acquiring Company/Asignee

Acquired Company/Assignor

①Ｍ＆Ａ or business transfer of large-size med-tech companies

Medtronic Covidien Boston Scientific Bayer

Zimmer Biomet Boston Scientific C.R.Bard

Becton Dickinson CareFusion

②Offshore M&A

Medtronic NGC Medical ItalyHospital managedservices

Stryker Berchtold HD Germany Surgical tables etc

Covidien(*1) Given Imaging IsraelSwallowed opticalendoscopy

St.Jude Medical EndosenseSwitzer-Land

Ablation catheter

Stryker Trauson HD ChinaTrauma-relatedmanufacturer

③Acquisition inside US （excluding California）

Covidien(*1) Sapheon NCVenous diseasetreatment

St.Jude Medical NeuroTherm MAInterventional painmanagement

Medtronic Visualase TX Laser ablation Medtronic TYRX NJSurgical siteinfections

Stryker MAKO Surgical FL Robotic arm Medtronic Cardiocom MN Telehealth

Contents/Location Contents/Location

Acquisition

Interventional divisionAcquisition

Acquisition Electrophysiology

医療機器産業におけるイノベーションの方法論　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　－シリコンバレーのエッセンスと日本での展開－5. Characteristics and Possibilities for Japanese Med-Tech Makers

・We survey capital investment and R&D trends of Japanese companies via their financial statements to compare with those of major US med-tech companies. In Japan, ‘medical devices makers’ are not always purely medical device companies; in some cases they are branches of electronics or materials makers and play big roles in the industry. The survey and this paper focus on the balance sheets of companies for which med-tech sales occupy a high proportion of their total sales between 2004 and 2013/14. Also, some companies in the US have strong sales both in med-tech and in, for example, medicine; however, we eliminate those companies for this survey. Therefore, Figure 5 does not include data on all major med-tech companies.

・In one decade, annual Japanese national healthcare expenditure went roughly from 32.1 (2004) to 39.3 (2013) trillion yen, an increase of 22％. OECD data shows annual US total healthcare expenditure increasing from 1.79 to 2.75 trillion dollars over the same period, growing at 54%.

・Sales and operational profits of ten major Japanese companies doubled during that same period. The total asset and cash position also increased in line with sales and profits. Intangible assets, including goodwill from acquisitions, was very small in 2004 but grew at a very high rate over those same ten years. On the other hand, the ratio of R&D to sales, or the amount of capital investment from operating CF, did not change at the same rate.

・The growth rate of sales in US companies is not different from that of Japanese companies; their operating profit to sales went down. But unlike their sales and profits, their intangible assets increased strongly. Also, R&D cost for US companies is composed of both self-development and additional R&D for acquired technology.

・As of 2013, US companies had high R&D costs to sales; however, their operating profit to sales was higher than that of Japanese companies．Regarding the ratio of capital investment to operating CF, US and Japanese companies are similar, but in terms of intangible assets to total assets, US companies' ratios are higher than Japanese companies'. Note, certain differences (for example, in the ownership structure of the manufacturing sector and in the accounting system) make comparison difficult.

・Over these ten years, Japanese companies invested in overseas factories because domestic demand was supposed to grow slowly. Some companies engaged in offshore M&A. Consequently Japanese companies overall realized higher sales growth than did the Japanese med-tech sector. Additionally, the growth rate of international sales and profits was also higher than the domestic figure (the effort should be highly appreciated). The disclosed offshore sales data of Japanese companies indicate that the international contribution to sales growth over these ten years was less than 80% and the domestic contribution was more than 20%.

・There are still big differences between US and Japanese companies in terms of the R&D cost-to-sales ratio and the investment for M&A. The huge R&D expenditure and acquisition investment must be the sources of US companies’ added value. US companies’ growth rates and profitability are decreasing somewhat and they should see some limits to investment. Japanese companies, on the other hand, instead of being so highly focused on improvement of existing products and on international distribution, should also find ways for their financial successes to lead to new business seeds. Now would be a good time to start.

No.241-6 （September 17, 2015）

医療機器産業におけるイノベーションの方法論　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　－シリコンバレーのエッセンスと日本での展開－Figure 5 Summery of Med-Tech Companies’ Financial Statements Focusing on Capital Investment

Sources. IR materials of the companies below.

Ten Japan med-tech companies Top ten companies in 2014 in which the proportion of med-tech sales to total sales was high over the previous 10 years: Terumo, Nipro, Sismex, Nihon-Koden, Fukuda Electronics, JMS, Hogi Medical, Nakanishi, Kawasumi Chemical, Asahi Intecc Eight US med-tech companies Top eight companies in 2013 in which the proportion of med-tech sales to total sales was high over the previous 10 years: Medtronic (Irish at present *), Stryker, Becton Dickinson, Boston Scientific, St.Jude Medical, Zimmer, C.R. Bard, Edward Lifesciences *Medtronic is an Irish company now, but was a US company during almost all the period above; thus, we

analyze the company as a US company for this report.

No.241-7 （September 17, 2015）

（JPY 100 million） （USD million）

2004fy 2013fy 2014fy2013/2004

2014/2004

2004fy 2013fy2013/2004

Sales 7,726 13,760 14,831 1.8 1.9 32,739 56,443 1.7Operating profit 955 1,619 1,803 1.7 1.9 7,302 9,703 1.3Ratio of Operating profit to Sales 12.4% 11.8% 12.2% 22.3% 17.2%Ratio of R&D cost to Sales 4.3% 5.0% 4.7% 8.0% 8.7%Cash equivalent (A) 1,884 3,196 4,018 1.7 2.1 6,029 8,790 1.5Intangible assets (B) 308 3,852 4,141 12.5 13.4 15,856 43,105 2.7Total assets (C) 10,294 21,883 25,143 2.1 2.4 46,673 109,986 2.4=A/C 18.3% 14.6% 16.0% 12.9% 8.0%=B/C 3.0% 17.6% 16.5% 34.0% 39.2%Operating cash flow (D) 930 1,999 1,937 2.1 2.1 8,240 13,192 1.6Investment cash flow (E) -561 -1,459 -1,193 2.6 2.1 -5,004 -8,103 1.6=E/D 60.3% 73.0% 61.6% 60.7% 61.4%

Sum of ten Japan med-tech companies Sum of eight Usmed-tech companies

・

医療機器産業におけるイノベーションの方法論　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　－シリコンバレーのエッセンスと日本での展開－6. New Initiatives for Development of Human Resources

・In Japan, the R&D sector plays a main role in developing new med-tech products (Figure 6-1). The reason for imports surpassing exports is not only this structure; another key factor is underdevelopment of Japan's med-tech sector human resources.

・As a part of Japan's national healthcare strategy, Osaka University, Tohoku University and the University of Tokyo launched the Japan Biodesign program in cooperation with Stanford University in October 2015. The Biodesign program, started by Dr. Paul Yock and others, is to cultivate human resources capable of medical device innovation based on ‘design thinking’. Its uniqueness is the process for innovation (Figure 6-3). We interviewed Dr. Fumiaki Ikeno about the core idea of the program (Figure 6-4).

・Also, Tohoku University has already started a program that returns medical assets to society (Figure 6-5).

・In addition to these nascent movements, Dr. Atsuhiro Nakagawa from Tohoku University and Dr. Ikeno from Stanford University share the opinion that 'implementation' is a key to developing human resources in Japan. Here 'implementation' means that product developers must take care to hear about needs firsthand, on-site from stakeholders directly connected to the business and then start actual trials. The initiatives below should foster effective methods in Japan.

From interviews with Dr. Atsuhiro Nakagawa, deputy director of CRIETO's Bedside Solution Program, Tohoku University

Figure 6-2 Healthcare Policy (excerpt)

Figure 6-5 Tohoku University CRIETO

Figure 6-4 Stanford University Biodesign Program: Points Drawn from the Dr. Fumiaki Ikeno Interview

Cultivating personnel in ‘medical devices development’ field To cultivate leaders in medical device development, Osaka University, Tohoku University and the University of Tokyo as well as the Japan Federation of Medical Devices Associations are collaborating with Stanford University on matters concerning the introduction of the Japan Biodesign program – a program that introduces practical ways of thinking and skills for ‘problem solving type’ innovation based on the identification of clinical needs . . . .

Figure 6-1 Comparison of Patent Holdings by Japanese and US Medical Device Makers (reprint from 'Ecosystem Report')

52

87

25

1

23

12

0% 20% 40% 60% 80% 100%

U.S.

Japan

Developed in-house Developed by acquired subsidiary

Acquired or purchased externally

Figure 6-3 Processes of the Biodesign Program

Note. 'To execute the existing healthcare policy as well as policies developed by the Cabinet in 2015. '

Merely hearing from doctors about needs doesn’t lead to the development of good products. So, most important

in the process outlined above is that product developers physically go to medical sites and identify needs

through firsthand observation. Interviews with doctors illuminate the critical areas of need. With this

information, team members and mentors of diverse backgrounds brainstorm on how to address the needs,

leading to the development of original solutions. In addition, persons that understand the whole process must

be cultivated.

Major US med-tech companies acquire many technologies from start-ups, but the technology is not matured at

the time of acquisition; thus, the major companies’ role is to build businesses from those immature products.

Tohoku University is committed to Japan Biodesign as well as to a hospital bedside-focused solution program

designed by the Clinical Research, Innovation and Education Center (CRIETO), part of the university's

Academic Science Unit (ASU) started in March 2014. In this program, teams of R&D partners who have passed

a series of tests and training accompany doctors to patients' bedsides, where they get firsthand exposure to

what is needed in these medical environments．

Medical technology is a broad category that includes, for example, the fields of IT and new materials, as well as

areas existing between medical industry and other industries.

No.241-8 （September 17, 2015）

Notes. 1. Prepared from data issued by Intellectual Property Information

Services Co., Ltd.

2. Covers all US medical device patents held by the 3 top-selling firms as of June 30, 2013.

3. "Acquired subsidiaries" refers to subsidiaries acquired since 1990.

Bootcamp

Needs

（Specification・Filtering）

Concept

（Development・Selection）

Project planning Presentation

Biodesign and the Japan Biodesign Program are guiding projects through the process illustrated

医療機器産業におけるイノベーションの方法論　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　－シリコンバレーのエッセンスと日本での展開－7. Utilizing the US Ecosystem

・A process like that depicted in Figure 7-1 exists in the US, where major med-tech companies comprise a so-called business development sector. In contrast, in Japan basically all the processes take place within the individual companies.

・As we saw on slide 5, US companies invest in both acquisition and their R&D. This R&D includes further development of acquired technology. It leads to their global growth.

・Approaches to bridge the gap between the Japanese and US models are thought to be in two steps. 1st: Introduce a biodesign program to stimulate R&D progress in Japanese companies and Universities. 2nd: Use the already existing US ecosystem.

・The essential issue of utilizing the US ecosystem is whether Japanese companies can incubate a way of thinking and activity that the US business development sector might have. Figure 7-2 shows problems to address in order to use the US ecosystem.

・First, based on VC comments, key points in whether Japanese companies can be good ‘acquiring companies’ are ‘fitting feeling’ and ‘mutual trust’. In the process, Japanese companies need to clarify their ‘want lists’ along with their business strategies. This is actually somewhat difficult because Japanese company board members are not accustomed to straightforwardly declaring their 'wants'.

・Next, in terms of the 'problems to be solved' identified on the right side of Figure 7-2, item a. is what VCs typically do, and companies might learn the process through making investments in venture funds. On the other hand, items b. through e. are the points that acquiring companies need to learn on their own.

・Some issues other than acquisition, from the perspective of global business, include (1) securing sales channels for existing products, (2) considering M&A for scale merit and (3) nurturing new business opportunities. However, Japanese companies sometimes downplay the business opportunity nurturing aspect. Another contrast is that US companies evaluate enterprises based on their global business. Japanese companies need to address these issues points as part of their growth strategies.

Note. Fig. 7-1 and 7-2 data were obtained from various sources.

Figure 7-1 Business Development Process

Figure 7-2 Adaptation to US Ecosystem and Related Issues

What is ‘business development’?

A process of (1) analytically

picturing growth strategy, (2)

acquiring new business that fits

the strategy and (3) implementing

the strategy

No.241-9 （September 17, 2015）

Idea→Project

Clinical efficiencyprocess

Approval/Ｅxit

Start-up／R&D

Innovation process

Business develop-

ment

Corporate planning／

Each business unit

Bu ilding new business unit

Organizing new product line-up／More R&D

Securing sales channel

Maintenance etcLarge

company

&Actual

transaction

Tentative theme

Commitment to development by board

a. Assess business value for new technology / References of products / Evaluation of management team (it’s all called ‘DD’ related issue.)

e. Funding for acquisition

VCs hope that acquisition companies have ….

Credibility

Fitting feeling

What they want to accomplish

Talent of management team

VC’s evaluation point for VB

Showing ‘Want list’

b. Committing continuously, Ability to build up products, and Team staff

c. Adaptation to local staff (and delegation)

d. Securing sales channels for global market

Priority regarding international business

Size of potential market

Difference in environment

Problems to be solved

Adaptation to Ecosystemof Med-tech

US characteristics Japanese companies should consider….

How Japanese companies stand at gate for VB’s Exit

How Japanese companies produce next main products

医療機器産業におけるイノベーションの方法論　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　－シリコンバレーのエッセンスと日本での展開－

175.0

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77.1 78.9

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400

2010 2015 2020 2025 2030 2035 2040

（thousand people）

Neoplasms

Malignant neoplasms

Mental and behavioural disorders

Diseases of the circulatory system

Heart diseases (excluding

hypertensive)

Cerebrovascular diseases

Diseases of the respiratory system

Diseases of the digestive system

Diseases of the musculoskeletal

system and connective tissue

Injury, poisoning and certain other

consequences of external causes

8. Japan's Way, Based on Its Domestic Medical Market

・As we show on slide 5, Japanese companies realize steady growth through global development of their own existing products. Nevertheless, the drive to innovate is not so strong in Japan; thus, we suggest that cultivation of new human resources and utilizetion of the US ecosystem might be needed. The question that arises is, are those initiatives good for the domestic medical market trend?

・Figure 8-1 shows potential inpatient trends for various major disease categories (this estimation doesn’t account for a shortening of hospitalization stays and an increase in the shift to home healthcare). The numbers of heart-diseased and cerebrovascular-diseased inpatients will grow to some extent and those areas are directly connected to med-tech development. As we show on page 4, many new developments are occuring in the circulatory organ, brain, peripheral and other fields. Developing minimally invasive products for aging society is a goal all over the globe.

・As for the market for care (well-being, medical) domestically in Japan, to prevent increases in social security costs, we will renew the medical structure via the ‘2025 model’, the name of which refers to the fact that by the year 2025, all baby-boomers will be over 75 years old. It mainly calls for advanced medical care through government integration of hospitals and for a ‘shift to home healthcare’ based on Community General Support Centers. Figure 8-2 depicts many hospital departments in which minimally invasive procedures are being developed. In this environment, individual companies in Japan are trying to expand their business horizontally and also develop portable products for home healthcare. The Japanese government also pushes such development by shortening the time it takes for the Pharmaceuticals and Medical Devices Agency to approve new medicines and medical devices.

・Japan has some strict regulations about the information that medical institutes can directly provide but, in general, advanced medical care and shifts to home healthcare are challenges that must be addressed worldwide. And if Japanese med-tech companies want to produce novel technologies like those depicted in Figure 4-1, they must critically examine not only doctors' and engineers' technological desires but also the implementation process. After that, they can proceed to refining their global penetration focus, which will have to include taking their corporate cultures based on precise procedural processes and creating innovative methods that can be useful in other countries that face similar issues.

・As for new med-tech technology, a broad range of businesses are entering this industry, frequently through alliances. There is constant demand for new materials and processing technologies in this field. And although the med-tech companies typically are developing methods best-suited to their own specific purposes, they should not hesitate to look for possible new markets. It is key that they resist being satisfied with the relatively safe practice of merely adopting popular developmental trends.

Figure 8-1 Potential Inpatient Trends (per day), by Type of Medical

Note: These estimations by DBJ are based on 'Patient Survey' data of the Ministry of Health, Labour and Welfare and

'Population Projections for Japan' of the National Institute of Population and Social Security Research.

(CY)

No.241-10 （September 17, 2015）

医療機器産業におけるイノベーションの方法論　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　－シリコンバレーのエッセンスと日本での展開－

Tatsufumi Aoyama, Economic & Industrial Research Department

Figure 8-2 Needs in Japan's Domestic Market for Care (Well-being and Medical)

No.241-11 （September 17, 2015）

Note. Sources for Fig. 8-2 are various data.

Aging population Increasing cost of social security

Acute care hospital

Sub-acute・Recovery

rehabilitation etc

Clinic

Nursing and caring facility

Home-based care

Home

Residences with health and welfare services

for the elderly

Life support/Preventive long-

term care

Suppressing cost

Making portable equipment/New angle to approach

Integrating hospitals for advance medical care

（‘2025’ Model） Data management & integration <Needs> Securing human resources

Establishment of integrated community care

system

Diversification of professional occupation

for treatment/care（nursing／therapy etc）

Developing new medical technology/Minimally invasive

Robots etc

Home Nursing care equipment

Digital health for consumers

<Needs>

<Needs>

respiratory disease

digestive organs

cerebrovascular disease

heart disease

ENT

orthopaedics

cancer

dialysis

dentistry

Catheter,Stent, Guidewire,Coil, Artificial Valve, Pacemaker,ICD etc

emergency care

etc

internal disease

gyne-cology

ophthal-mology

perinatal care

Endoscope etc

Radiotherapy device etc

diagnostic equipment

CT,MRI,X-ray,ultra-sonic,endoscope etc

Hospital

Long-term bed

Home Medical Equipment

All inquiries should be directed to the Economic & Industrial Research Department,

Development Bank of Japan Inc.

Economic & Industrial Research Department

Development Bank of Japan Inc.

Phone: +81-3-3244-1840

E-mail: report@dbj.jp

No.241-12 （September 17, 2015）